How to Find Bullish Sector Stocks in a Bear Market

by Linda Ray

Following trends in the market is an important strategy that can help you identify bullish stocks in a bear market. According to Trading Online Markets, you can gauge about 60 percent of a stocks overall performance by watching market trends. Identifying trends puts you in a position to invest stocks that may be poised for increases as much as six months before the economy officially reaches bullish status.

Watch the Relative Strength Indicator, or RSI, on the S&P 500. The RSI considers the magnitude of a stock’s recent gains and losses and rates them on a scale of 0 through 100. When the size of the gains moves up and reaches 50 or more, that’s an indicator that the stock is going bullish. When losses outpace gains in this category, the stock most likely is ready to drop.

Pay attention to the 150-day exponential moving average (EMA). The EMA tracks stocks daily and often fools investors when it flattens out. When the EMA takes an upward tick, you are more likely to see the market return to a bullish state. Buying stock early during this period is one way to get a jump on the lower prices while the bear market predictions continue to dominate.

Look at historical dates available for a particular stock. The further back you can go, the better chance you’ll have of spotting trends. Industries tend to follow patterns that sometimes buck the majority flow of the market. For example, when real estate markets go bearish, home improvement companies typically end up slightly more bullish.

Follow historical market patterns as well. Once you’ve gauged timelines during other bear markets and how quickly the bull market returned, you may be able to catch rising stocks just before they turn completely bullish. For example, big bear markets that occurred in the 1930s and again in the 1970s started a bullish return and then stabilized for about six months before rising again. As history repeats itself, a bullish return should be expected in the 2010s for many surviving stocks.

Tip

  • Find safe haven stocks to shore up your portfolio for bear markets. Most of the solid, strong companies will resist huge downturns in a bear market and may even climb while others stocks decline. Also called defensive stocks, they are the base upon which you can turn for stability and bullish returns, even in a bear market.

Warning

  • If you’ve set up a strategy that includes long-term profiling, be careful about getting caught up in short-term media hype and negative publicity about the market and the economy. Trends and patterns are more predictable than spikes and quick drops and shouldn’t sway you from your initial plans.

Items you will need

  • Relative strength indicator
  • Exponential moving average
  • Historical data

About the Author

Linda Ray is an award-winning journalist with more than 20 years reporting experience. She's covered business for newspapers and magazines, including the "Greenville News," "Success Magazine" and "American City Business Journals." Ray holds a journalism degree and teaches writing, career development and an FDIC course called "Money Smart."

Photo Credits

  • Zedcor Wholly Owned/PhotoObjects.net/Getty Images